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Cell C gets R5.7bn cash injection

Cell C announced today that it has received a cash injection of about R5.7bn and promised to use its strengthened financial muscle to steal more market share within the tight South African mobile phone market.

The third largest mobile network operator in South Africa said yesterday its majority shareholder, Oger Telecom, has earmarked an equity investment of $350 million (about R3.5 billion at the current exchange rates). In addition the company secured a long-term financing package of R2.2 billion from key lenders and named only Nedbank and DBSA.

After entering the market way after South African mobile phone giants, MTN and Vodacom, has established a comfort zone for themselves, Cell C has struggled to shake the establishment. Lately and under the leadership of former Vodacom CEO Allan Knott-Craig, Cell C has launched an aggressive campaign to steal market share. It has led a mini price war within the matured South African market. In doing this, Cell C may have overstretched itself and as such needed capital injection.

The company said the inflows of long-term capital will cement its ability to continue offering competitive and innovative products and services and ultimately lower the cost to communicate in South Africa.

“In addition, the funding structure ensures the company maintains an appropriate capital structure and balance sheet to sustain its drive to offer compelling tariffs and services to its customers,” said the company.

Knott-Craig said “Our shareholders have indicated a willingness to inject further equity in 2014, if, as anticipated, the review by the Regulator facilitates a more competitive industry where smaller players like Cell C can remain sustainable”.

The company added that “The injection follows the Independent Communications Authority of SA’s announcement in June to conduct a market review of the remedies under the Call Termination Regulations and other programmes aimed at addressing the high cost to communicate in South Africa”.

The cash boost shows Oger Telecom’s continued confidence in the Cell C strategy and its belief in a fair regulatory outcome of the review, focussing on sustainable competition in the market, that will unlock the potential of the business and lead to lower prices for consumers. The equity investment of USD350 million for 2013 is in addition to the USD200 million equity invested in 2012 and a further significant investment scheduled for 2014.

Mohammed Hariri, Chairman of both Cell C and Oger Telecom, said “Under the leadership of Alan Knott-Craig, Cell C has gone from strength to strength. The company has a solid business strategy and we are confident that the Regulator will make decisions that give smaller players a better chance of being sustainable competitors. It is on this basis that we as shareholders are fully committed to the company and the country”.

Cell C has been exceptionally competitive over the last year, acquiring market share from its competitors and reducing mobile tariffs to its customers. The company now has over 11.5 million customers.

Knott-Craig added that “ICASA’s decision to conduct a market review of the remedies under the Call Termination Regulations has bolstered our shareholders’ confidence in the future of Cell C and the industry. The equity injection also strengthens our balance sheet. But Cell C needs aggressive and proactive regulatory support to continue its drive to reduce the cost to communicate in South Africa and remain sustainable in the process”.

“As part of ICASA’s holistic look at the telecommunications industry under its Cost to Communicate Programme, it will review the Call Termination Regulations. This is a positive move by ICASA, which has committed to focussing on specific remedies and not a wide review. And there are a number of possible remedies of which the most important are aggressive and sustained asymmetry, mandatory flat rates and lower mobile termination rates for operators with significant market power”.

“With this financial injection and a regulatory outcome that promotes sustainable competition for smaller players, Cell C will lead the way in lowering the cost to communicate and further expand its network coverage,” said Knott-Craig.

Nedbank which released a separate statement saying it was the lead coordinator and underwriter of the R2.2bn loan funding also banged in the Cell C crusade song. “The transaction is tailored to meet the needs of Cell C on their journey to expand their market share,” said Nedbank.

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